Anand Rathi's Varun Saboo: IT Stocks Shine at 18x Forward Earnings

Ongoing tariff tensions may dominate the news, but their actual influence on India’s economy is expected to be minimal. Varun Saboo, Head of Equities at Anand Rathi Shares, discussed this on ET Now, highlighting India’s measured response and its efforts to forge new trade partnerships to mitigate potential setbacks.

“While the chatter around tariffs has created a buzz, our exposure is quite limited. Even in a worst-case scenario, the effect on GDP won’t surpass 70 to 80 basis points,” Saboo stated. He also pointed to India’s efforts to diversify its trade, noting recent agreements like the free trade deal with the UK, along with strengthened relations with Europe, China, and BRICS nations. This shift presents more opportunities than challenges, he explained.

H2: Positive Outlook Amidst Tariff Challenges

Interestingly, the tariff situation might lead to improved circumstances. Nations affected by these tariffs are beginning to unite, particularly within BRICS—Brazil, Russia, India, China, and South Africa—strengthening connections among members. With this renewed collaboration, India is positioned to lessen its reliance on any single country.

Saboo emphasized the importance of government initiatives in bolstering growth. “The rationalization of GST and various planned economic measures indicate a proactive approach from the government. Domestic consumption and manufacturing are being enhanced as protective measures. Furthermore, last month’s inflow of ₹43,000 crore into mutual funds underscores resilient domestic investment,” he mentioned.

H2: Market Positioning and Valuations

India’s blend of policy backing, robust domestic demand, and appealing sector opportunities ensures the market remains attractive despite global uncertainties.

On the topic of market valuations, Saboo expressed optimism: “With the market trading at 18 times one-year forward earnings or 16.5 times two-year forward earnings, this represents an incredibly attractive entry point.”

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He also turned his focus to the IT sector, where he dismissed worries that artificial intelligence (AI) might disrupt the industry permanently. “We’ve encountered similar fears before—during the Y2K phase and the advent of cloud technology. Each time, Indian IT has adapted and emerged stronger. Today, AI represents another opportunity,” he explained, adding that deal wins are already materializing.

With many IT giants trading below their long-term average multiples, Saboo sees an appealing risk-reward scenario. “Companies like Infosys, TCS, and Wipro are exceptional cash-generating enterprises available at 17 to 19 times earnings. At these valuations, they’re seriously worth considering,” he emphasized.

Offering a balanced view on the economic landscape, how do you see the potential for growth in India’s market amidst these ongoing global challenges?